They have become forces in their own right, accounting for approximately 21% of sales in the $1.7 trillion U.S. grocery industry, according to IRI.
But the origins of in-store brands remain largely secret.
Retailers usually don’t talk about the companies that make their brands. Likewise, manufacturers have little reason to disclose that they make products similar to their brand name under another brand that sells cheaply.
While department store brands ostensibly compete with manufacturers’ national brands, manufacturers often have excess capacity on their product lines. To earn extra, some will use the extra capacity to make private labels.
Manufacturers of other brands will start producing private labels as an incentive to retailers in the hope that they will be rewarded with more shelf space and a place for their patriotic brands.
“Most manufacturers are not open about it,” said Jean Benedict EM Steenkamp, a marketing professor at the University of North Carolina who deals with private labels and branding. “Manufacturers don’t want to be known to undermine the strength of their brands.”
Eight O’Clock Coffee and Kenmore
Macy’s whiskey jugs are sold under their own name. According to Christopher Durham, president of the Velocity Institute, a trade association for private label brands, customers can return the jugs for refills.
Montgomery Ward developed its own line of aspirin in wooden containers, while Great Atlantic & Pacific Tea Co. (aka A&P) branded spices with the tagline “Take grandma’s advice, use A&P spices”. A&P later developed Eight O’Clock Coffee, one of the most popular private label brands of the time.
In 1925, Sears created the Allstate tire brand. A few years later, according to Durham, Sears released their first literal key. The Kenmore line, which started in 1913 as a sewing machine brand before branching out into vacuum cleaners and other home appliances, has become the leading home appliance brand in the United States.
However, these special characters were the exception.
Most customers were fiercely loyal to certain brands, not retailers. A store without big brands would likely be crushed, giving manufacturers massive leverage.
In addition, many store brands have also been viewed as fading and cheap imitations of national brands.
Durham said the low point for private labeling came in the 1970s, when stores tried to cut costs and roll out generic drugs with a simple white background and black letters identifying the product: beer, soap, Coke, beans and other staples.
Retailers create private labels for a variety of reasons, including to increase profitability and sometimes as a bargaining tool against brands.
Private labels often have 20% to 40% more profit margins than national brands because stores don’t have to pay for advertising, distribution or other brand costs that are included in the prices of big brands.
In the mid-20th century, many retailers began to develop their own brands to regain the bargaining power of dominant suppliers and control their prices. With the consolidation of American retailing in recent decades, the power dynamic between retailers and suppliers has reversed. Now stores have more opportunity to offer their own brands, whether the brands like it or not.
“Forty years ago, Walmart’s grudge against Procter & Gamble was a precarious situation. Now Walmart is much bigger than P&G,” said Steenkamp, the marketing professor.
Today, stores’ private label activities are more complex than ever, and there is much more focus on chains.
Krishnakumar Devi, Head of Customer Engagement at IRI, said stores today are more likely to develop a special brand or distinctive product to differentiate themselves from competitors and create loyalty for shoppers.
The US House Judiciary Committee and other lawmakers and regulators around the world have been investigating whether Amazon uses seller data to create its own brands and illegally favors its own brands on its website.
Most stores start small with their own brands. For example, grocers often first offer a shelf-stable product such as pasta, flour, sugar or rice that is easy to make and where brand loyalty within this category is not strong.
“Don’t start with the hardest things,” Steenkamp said. “As stores build more experience and success, they move into new categories.”
How do you know who makes brand name stores?
So how do you find out who is behind your favorite store brands?
Product recalls are often the most revealing way to discover which brand manufacturers are behind specific private labels.
For example, Dole last year recalled fresh salads and vegetables, including Walmart’s own Kroger and HEB brands.
Some larger retailers also make their own labels. Kroger, for example, makes about 30% of its own products.
Perhaps the strangest producers of store brands are the retailers that make private labels for their competitors: Lucerne Foods, owned by Safeway, makes private labels for Safeway’s competitors.